What Is Subscription-Based Credit Card Processing?
In response to the negative stigma held against the merchant services industry, there has been a shift in payment processing. Specifically, there has been a shift toward transparency and predictability. At the head of this shift is subscription-based credit card processing.
Credit card processing companies have a reputation of using deceptive practices to increase their bottom lines. From markups to interchange, it is no wonder why business owners find it hard to understand their merchant statements. Nevertheless, as our previous blog post explained, understanding your merchant statement is the first step in understanding your costs and cutting them if necessary.
The rest of the article explains subscription-based credit card processing.
Subscription-Based Pricing Starts With A Flate Rate
At the heart of subscription-based pricing is the flat rate, which the subscription-based processor uses to calculate all subscription fees. The flat rate is the competitive attribute of subscription pricing. As a business owner, you should use it as a baseline in judging the cost-effectiveness of a subscription-based processor.
For your reference, the industry average is 2.75%.
What’s Your Monthly Credit Card Volume?
Your monthly credit card volume places you in a bucket. For example, if your monthly credit card volume is $8,750, you will be placed in a bucket between $5,000 and $10,000. As a whole, that bucket or group will have a fixed monthly fee for processing.
A Fixed Fee
The subscription-based processor will then multiply that flat rate by a value within your respective credit card volume bucket. The industry standard is to multiply the flat rate by the high-end of your monthly credit card volume bucket. The reason for this is to cover the costs of your bucket.
For example, if the individual who processes $8,750 a month sees a rise in volume during a particular month and overshoots the upper limit of his or her respective bucket ($10,000), costs will be covered most of the time.
However, subscription-based payment processors accept that they will sometimes take a loss. However, they feel that they have more to gain by offering transparency and predictability to their clients through subscription-based pricing.
Aside from transparency and leanness, the value of subscription-based pricing is predictability. With subscription-based pricing, you know what you will pay for credit card processing each month. By having that certainty, you can better manage your expenses. Therefore, you can make more informed business decisions because you have predictability on your side.
What Happens If My Monthly Volume Increases?
Increased credit card volume is a good thing. It means that you are gaining more customers. You should not pay a penalty for your business’ growth. It should be seen as an opportunity by the processor to take advantage of your increased volume to sneak in hidden fees and markups.
On the contrary, subscription-based pricing leaves breathing room. If your monthly volume exceeds your bucket’s upper limit, you will not pay any extra fees.
Payments With TAPLocal
Committed to offering transparency in an industry that will nickel and dime you, we, at TAPLocal, offer subscription-based credit card processing to our merchants.
Our rates start at 2.5% (which is well below the industry average of 2.75%). However, you can drive your rate down to 2% by bundling our marketing products with your payment processing. We’ll even throw in a free Clover payments device.